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Stocks stay weak despite raise in Pakistan's rating
The latest lift to Pakistan's investment sentiment on Friday came when Standard and Poor's, the global rating service, lifted Pakistan's sovereign rating to CCC+ up from CCC, citing improvements in the country's external position following the conclusion of last month's loan programme with the International Monetary Fund (IMF).
- By Farhan Bokhari, Special to Gulf News
- Published: 20:14 December 20, 2008
Islamabad: The latest lift to Pakistan's investment sentiment on Friday came when Standard and Poor's, the global rating service, lifted Pakistan's sovereign rating to CCC+ up from CCC, citing improvements in the country's external position following the conclusion of last month's loan programme with the International Monetary Fund (IMF).
The lift to the rating however coincided with the end to a week when the Karachi Stock Exchange's 100 index known as the KSE-100 fell about 18 per cent altogether.
The fall in the KSE index was triggered mainly after the government's regulator known as the SECP or Securities and Exchange Commission of Pakistan, finally intervened to remove a four month old floor slapped by the KSE's management in August.
The floor was meant to prevent the KSE-100 index from falling further after a slide began, triggered in particular by concerns over Pakistan's political and economic direction.
In spite of the removal of the floor last Monday, the KSE-100 index continues to slide.
Friday's close is no assurance that tomorrow's opening will not kick off another week of considerable losses.
By many accounts, the KSE-100 index must fall further. This is mainly because the informal deals that are presently taking place outside the stock market, suggest further discounts of between 30 to 40 per cent.
It is likely that investors will want to step out of the stock market soon.
In the short term, this trend is likely to produce two types of subsequent trends. On the one hand, there will be those who are willing to step out of the stock market at any cost, perhaps in consideration of finding opportunities elsewhere.
Logically, such a view makes considerable sense. At a time when there is an across the board economic slowdown, investments in areas such as real estate may be a worthwhile option.
On the other hand, there may well be those who have accumulated sufficient reserve funds from high returns in previous years that they can not afford to confront a period of losses.
Economic environment
For such investors, consolidation is the name of the game at a time when the outlook in the period ahead appears to be driven by weak surroundings in the year ahead.
Either way, the future prospects present two inter-related challenges. On the one hand, it is essential for investors to remember that blindly selling out in a weak economic environment may not be in their best interest.
Instead, holding on to their stocks as they go forward may well offer the promise of a relative recovery on their portfolios.
A period of low economic and investment growth may indeed present fresh opportunities.
For many prospective investors, there may still be an opportunity to swap some of their equity investments for other stocks, taking note of the promise of improved returns such as the occasional payments in terms of dividends.
- The writer is a journalist based in Pakistan
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